Here is another small special situation -- Perfumania (PERF) is the largest specialty retailer and distributor of fragrances and related beauty products in the United States, they've suffered from the Amazon effect and resulting decrease in mall traffic like many other specialty retailers. On August 26, Perfumania filed for chapter 11 bankruptcy protection, primarily as a way to bring their mall landlords to the table as they explicitly call out that significant landlords would only negotiate with them if the company was in bankruptcy. All of their other creditors will be unimpaired including the controlling family, the Nussdorfs, who are both their largest creditor and equity shareholder.
The Nussdorf family owns just under 50% of the equity, they're proposing to pair up with another large investor, the Garcia family, to recapitalize the company and inject $14.2MM into Perfumania. Their plan is to take the company private and then shutter much of the 226 retail store footprint, instead focusing on the distribution side of the business. In order to speed things along and ensure a quick stay in bankruptcy, they're throwing a bone to the minority shareholders by giving "the opportunity to receive consideration of $2.00 per share in exchange for completing a shareholder release form." The company's financial advisers call it a "gift" and that the company has no value on a going concern basis.
There are some NOLs here to protect, and the Nussdorf family has loaned the company $85MM, their interests are somewhat aligned to see this company restructured and perform well moving forward. But time is critical for any retail turnaround story, hence the need to rid themselves of any delay from angry shareholders. The opt-in date for the shareholder release form is 10/6/2017, or less than a month away, and shares currently trade for just over $1.80 per share representing a fairly decent short term return opportunity. There's risk here, if the deal gets pulled or the plan doesn't get approved by the court (both seem unlikely?), we already know the equity is worthless, size appropriately.
Disclosure Statement: https://www.sec.gov/Archives/edgar/data/880460/000088046017000031/exhibit991disclosurestatem.htm
Disclosure: I own shares of PERF
Interesting find. Out of curiosity how did you did this get on your radar?
ReplyDeleteIt was sent to me from a reader, I don't frequent Perfumania's stores, sounds like a asthma attack waiting to happen!
Deleteha! thanks for the response
DeleteDunno if you ever took a look at BRT, but they did exactly as expected, though at least 6 months earlier than I'd anticipated, so I didn't have quite as much as I'd planned. They initiated an .18 quarterly dividend and a buyback. I assumed they'd wait until their NOLS were exhausted; as far as I can figure they have ~$5 million left. Ah, well--sometimes being early is wrong, and sometimes being early isn't even early! Still offers a very nice discount to book and decent yield.
ReplyDeleteGood one. I did start to look at it and then got side-tracked (happens a lot), but I kept it on my watch-list and saw the news today. I own STAR which is in a similar non-dividend paying spot with NOLs, someday maybe.
DeleteI think buying stocks in companies which have a clear (and stated) path to dividend resumption (or occasionally increase, if that's not adequately understood by holders/market) is a very good strategy, not least because it's like watching paint dry--not exciting enough for short term traders. Taiga, Noranda Income and Cathedral Energy are 3 tiny Canadian cos I'm looking at, though I have to check that Cathedral hasn't changed its position on resuming distributions when possible.
DeleteWondering if you have looked at or are considering writing about the upcoming Consol Energy Spinoff? Thanks again for your blog.
ReplyDeleteI have been following along and at a high level it looks interesting, my issues is valuing the parent/natural gas company, what's the right way to do it? I've struggled valuing E&P's over the years, but I like management and if you go back to some of Einhorn's presentations on CNX, you can see the potential value there. Thanks for reading.
DeleteAgree that valuing E&P is extremely difficult. Like management and the board chair and think the incentives are aligned. Also intrigued that just about everybody is completely bearish on natural gas the long term. Throw in that Einhorn rarely averages down (which he has done quite a bit of here) and I think the risk-reward is favorable. We shall see. Keep up the great work with your blog and investment returns.
ReplyDeleteWhat did you think of the ITEK announcement. Do you still own?
ReplyDeleteI don't know what to make of it so I sold a bit above $1.20, mentioned it in the other thread. Good outcome, could be great, but I just don't know enough about biotechs or gene therapy technology to make an informed decision.
DeleteHi MDC - If you are looking for new ideas, take a peek at BW. Very much hated story due to a recent restructuring deal with a Fund - another combative fund (Vintage) recently bt 15% of the stock but has not taken an activist stance (13G). May be worth your time. Best. XFL
ReplyDeleteThanks - I looked it the first time it got smoked, on my list to re-visit.
DeleteWhile it's not surprising that PERF has had *11* consecutive quarters of revenue decline, I wonder how gross margins have stayed relatively flat in the face of that collapse? You can see here:
ReplyDeletehttp://www.rocketfinancial.com/Financials.aspx?fID=8599&p=1&pw=283725&rID=1&tID=1&stID=1
Good catch, can't think of anything immediately? I hoping it doesn't matter and the plan gets approved at $2.
DeleteMDC, how will the Stockholder Release Form be distributed to stockholders? Dow we need to be proactive? If you know. And thanks for the idea!
ReplyDeleteYes. I believe you need to be proactive and contact the corporate actions group of your broker and have them complete the release form on your behalf. It's a little unusual, so hopefully you can get someone competent on the phone.
DeleteHi MDC, thanks for sharing this idea. I am brokering with Interactive Brokers, I believe you too. Investors were given the opportunity to 'Submit shares for Opt-In Election'. Do you know if that's enough or if the 'stockholders release form' needs to be signed separately?
DeleteI don't use IB, probably should, but that sounds right, you should be good. It's just not a situation where if you wait and do nothing cash will appear in your account.
DeleteProceeds received. A late thank you!
DeleteMDC, do you know where to get the release form? I don't see it in the disclosure statement, have not received a call back from the company or its bankruptcy counsel.
ReplyDeleteUpdate, I heard back from bankruptcy counsel. There was an early tender opportunity, which expired 10/6, that Etrade didn't tell me about. There is another tender opportunity that will expire mid-November, paperwork going out now, should be available Monday latest. You really have to be pro-active on this one!
ReplyDeleteHi sorry -- I submitted the opt-in form earlier and received my $2 already, yes, this one requires a little more work than normal, but I think it was worth it? Thanks for reading.
DeleteIt was a great opportunity. Especially the day after early tender offer expired I managed to buy a larger second chunk, got my money for that earlier this week. Thanks!
DeleteHi MDC, Is the tender opportunity still open - saw that it's available till mid-Nov. Just looking to see if it's worth it
ReplyDeleteI'm not entirely sure, just checked my brokerage platform and doesn't look like I can buy anymore shares? If you own it, definitely opt-in otherwise it's possibly worth it, but not sure you can participate if you haven't bought shares yet based on what I'm seeing.
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